Unfair or Deceptive Acts or Practices (Regulation AA), 51115-51116 [2014-20279]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 79, Number 166 (Wednesday, August 27, 2014)]
[Proposed Rules]
[Pages 51115-51116]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20279]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 79, No. 166 / Wednesday, August 27, 2014 / 
Proposed Rules

[[Page 51115]]



FEDERAL RESERVE SYSTEM

12 CFR Part 227

[Docket No. R-1490]
RIN 7100 AE-19


Unfair or Deceptive Acts or Practices (Regulation AA)

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice of proposed rulemaking; request for public comment.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is proposing to repeal its Regulation AA, which was issued pursuant to 
its rule writing authority under section 18(f)(1) of the Federal Trade 
Commission Act (FTC Act or Act). Section 1092(2) of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Dodd-Frank Act) repealed 
section 18(f)(1) of the FTC Act, thus eliminating the Board's rule 
writing authority under the Act.

DATES: Comments must be received on or before October 27, 2014.

ADDRESSES: You may submit comments, identified by Docket No. R-1490 and 
RIN 7100 AE-19, by any of the following methods:
     Agency Web site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/apps/foia/proposedregs.aspx.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: regs.comments@federalreserve.gov. Include the 
docket number in the subject line of the message.
     FAX: (202) 452-3819 or (202) 452-3102.
     Mail: Robert deV. Frierson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551.

All public comments are available from the Board's Web site at https://www.federalreserve.gov/apps/foia/proposedregs.aspx as submitted, unless 
modified for technical reasons. Accordingly, your comments will not be 
edited to remove any identifying or contact information. Public 
comments may also be viewed electronically or in paper form in Room MP-
500 of the Board's Martin Building (20th and C Streets NW.) between 
9:00 a.m. and 5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Mandie K. Aubrey, Counsel, Division of 
Consumer and Community Affairs, at (202) 452-3667, Board of Governors 
of the Federal Reserve System, 20th and C Streets NW., Washington, DC 
20551. For users of Telecommunications Device for the Deaf (TDD) only, 
contact (202) 263-4869.

SUPPLEMENTARY INFORMATION:

I. Background

    The FTC Act directs the Federal Trade Commission (FTC) to 
promulgate rules to define and prevent unfair or deceptive acts or 
practices for persons other than banks, savings and loans, and Federal 
credit unions.\1\ Pursuant to the Act, in 1984 the FTC issued its 
Credit Practices Rule, which applied to persons within the FTC's 
jurisdiction.\2\
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    \1\ 15 U.S.C. 45 and 57a(a)(1).
    \2\ 16 CFR 444.1-.5.
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    Prior to Dodd-Frank Act amendments to the FTC Act in 2010, section 
18(f)(1) of the Act required the Board to promulgate rules applicable 
to banks that were ``substantially similar'' to these FTC rules, with 
some exceptions.\3\ In addition, section 18(f)(1) of the Act provided 
the Board the authority to prescribe additional rules for banks 
addressing unfair or deceptive acts or practices--regardless of whether 
the FTC had promulgated rules about such acts or practices. The Act 
also required the Board to take appropriate action on complaints about 
unfair or deceptive acts or practices by banks.\4\
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    \3\ Section 18(f)(1) of the Act was previously codified at 15 
U.S.C. 57a(f)(1). The Board was not required to impose substantially 
similar rules if it found that: (1) Such acts or practices of banks 
were not unfair or deceptive, or (2) implementation of similar 
regulations with respect to banks would seriously conflict with 
essential monetary and payments systems policies of the Board.
    \4\ The same authority that was conferred to the Board by 
section 18(f)(1) of the Act also applied to the Federal Home Loan 
Bank Board (FHLBB) (predecessor to the Office of Thrift 
Supervision), with respect to savings associations, and to the 
National Credit Union Administration (NCUA), with respect to Federal 
credit unions.
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    Pursuant to its rule writing authority in section 18(f)(1) of the 
FTC Act, the Board issued Regulation AA,\5\ including the Board's 
credit practices rule, which was adopted in 1985.\6\ The Board's credit 
practices rule was substantially similar to the FTC's Credit Practices 
Rule; in adopting the rule, the Board relied on the extensive findings 
that had been made by the FTC that the prohibited practices were unfair 
or deceptive.
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    \5\ 12 CFR Part 227.
    \6\ 12 CFR Part 227, subpart B.
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    The Board's credit practices rule in Regulation AA prohibits banks 
from using certain remedies to enforce consumer credit obligations and 
from including these remedies in their consumer credit contracts. 
Specifically, the rule prohibits the following contract provisions and 
remedies:
    (1) Confession of judgment clauses that require consumers to agree 
in advance to waive their right to a hearing;
    (2) Waivers of state statutory exemptions that protect debtors' 
homes and personal necessities from attachment to satisfy a debt, 
unless they were pledged as collateral for the loan;
    (3) Clauses that assign consumers' future wages to the creditor in 
the event of default; and
    (4) Provisions granting the creditor a security interest in 
household goods not in the creditor's possession, unless the goods were 
purchased with the credit.
    The rule also prohibits banks from:
    (1) Obligating a co-signer on the debt unless the co-signer 
previously received a clear and conspicuous written notice explaining 
the nature of the co-signer's obligations and liabilities under the 
contract; and
    (2) Imposing a late fee when a consumer makes a full loan payment 
on time or within the grace period, solely because the consumer did not 
pay a previous late fee imposed on an earlier installment (the 
``pyramiding'' of late fees).
    In addition, Regulation AA contains a provision that informs 
consumers how to file a complaint regarding a state member bank and 
explains the Board's procedure for responding to such complaints.\7\ 
The provision lists an address to which consumers may send their 
complaint, and explains that consumers will receive, within 15

[[Page 51116]]

business days, either a substantive response or an acknowledgment 
setting a reasonable time for a substantive response.
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    \7\ 12 CFR 227.2.
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    Finally, Regulation AA contains information regarding state 
exemptions from the rule.\8\ The Board also published, separately from 
the regulation, Staff Guidelines to clarify how Regulation AA applied 
in particular circumstances.\9\
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    \8\ 12 CFR 227.16.
    \9\ https://www.federalreserve.gov/regulations/cg/crdtpracrul.htm.
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    The Dodd-Frank Act \10\ repealed section 18(f)(1) of the FTC 
Act.\11\ Accordingly, the Board is proposing to repeal its Regulation 
AA.
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    \10\ Pub. L. No. 111-203, 124 Stat. 1376 (Jul. 21, 2010).
    \11\ See section 1092(2) of the Dodd-Frank Act. The repeal of 
section 18(f)(1) of the FTC Act also repealed the authorities of the 
former FHLBB and the NCUA. See supra note 4. Section 1092(2) of the 
Dodd-Frank Act did not repeal FTC Act rule writing authority for the 
FTC, so the FTC Credit Practices Rule remains in effect. See supra 
note 2.
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II. Discussion

    Unlike other consumer protection laws and regulations, Regulation 
AA did not transfer from the Board to the Consumer Financial Protection 
Bureau (Bureau) under the Dodd-Frank Act. Specifically, the Dodd-Frank 
Act transferred rule writing authority only for ``Federal consumer 
financial laws,'' but did not include the FTC Act in the definition of 
``Federal consumer financial law.'' \12\ Therefore, Regulation AA was 
excluded from the authority that transferred from the Board to the 
Bureau. As a result, neither the Board nor the Bureau has authority to 
promulgate rules pursuant to the FTC Act. The Bureau, however, was 
given separate authority under the Dodd-Frank Act to promulgate rules 
to identify unfair, deceptive, or abusive acts or practices.\13\
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    \12\ See Dodd-Frank Act sections 1061(a)(1), (b)(1) 
(transferring authority of ``Federal consumer financial laws'' to 
the Bureau) and section 1002(14) (defining ``Federal consumer 
financial laws'').
    \13\ Section 1031 of the Dodd-Frank Act.
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    Notwithstanding the repeal of rule writing authority under the FTC 
Act, the Board continues to have supervisory and enforcement authority 
regarding unfair or deceptive acts or practices under section 5 of the 
FTC Act and sections 1031 and 1036 of the Dodd-Frank Act.\14\ 
Concurrent with this proposed repeal of Regulation AA, the Board, 
Bureau, Federal Deposit Insurance Corporation, NCUA, and Office of the 
Comptroller of the Currency are issuing interagency guidance clarifying 
their view that the unfair or deceptive practices described in the 
former credit practices rules, including those in Subpart B of 
Regulation AA, could violate the statutory prohibition against unfair 
or deceptive practices, even in the absence of a specific regulation 
governing the conduct.\15\ The Board is making copies of the former 
credit practices rules and the former Staff Guidelines available for 
reference along with the interagency guidance.
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    \14\ See 15 U.S.C. 45 (section 5 of the FTC Act). The Board has 
authority under section 8 of the Federal Deposit Insurance Act to 
take appropriate action when a bank under its supervision engages in 
unfair or deceptive acts or practices that violate section 5 of the 
FTC Act. See 12 U.S.C. 1818(b)(1), (e)(1), and (i)(2) and ``Unfair 
or Deceptive Acts or Practices by State-Chartered Banks'' (Mar. 11, 
2004) https://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040311/attachment.pdf. See also 12 U.S.C. 5531, 5536 (sections 
1031 and 1036 of the Dodd-Frank Act).
    \15\ ``Interagency Guidance Regarding Unfair or Deceptive Credit 
Practices'' (August 22, 2014), https://www.federalreserve.gov/.
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    The repeal of Regulation AA would eliminate Subpart A of the 
regulation, which generally describes the internal procedures used by 
the Board in handling consumer complaints. Information about how the 
Board processes consumer complaints is currently provided on the 
Board's public Web site where it will continue to be available.\16\ The 
consumer complaints information on the Board's public Web site can be 
updated easily and is readily accessible to consumers. Because 
consumers are not likely to benefit from also having these internal 
processing procedures included in the Code of Federal Regulations, the 
Board is also proposing to repeal these provisions in Subpart A of 
Regulation AA.
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    \16\ https://www.federalreserveconsumerhelp.gov/.
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III. Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act \17\ (RFA) generally requires an 
agency to perform an assessment of the impact a rule is expected to 
have on small entities. Based on its analysis, and for the reasons 
stated below, the Board believes that this proposed rule will not have 
a significant economic impact on a substantial number of small 
entities. A final regulatory flexibility analysis will be conducted 
after consideration of comments received during the public comment 
period.
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    \17\ 5 U.S.C. 601 et seq.
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    1. Statement of the need for, and objectives of, the proposed rule. 
Regulation AA was issued pursuant to section 18(f)(1) of the FTC Act. 
As noted above, the Dodd-Frank Act repealed this provision of the FTC 
Act.\18\ Accordingly, the Board is proposing to repeal its Regulation 
AA.
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    \18\ See section 1092(2) of the Dodd-Frank Act.
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    2. Small entities affected by the proposed rule. The proposed rule 
would repeal Regulation AA, which was issued pursuant to section 
18(f)(1) of the FTC. As a result of the FTC Act amendments made by the 
Dodd-Frank Act, the Board no longer has rule writing authority under 
section 18(f)(1). The legislative repeal of the Board's rulemaking 
authority nullified the provisions in Regulation AA that were issued 
pursuant to that authority. Consequently, the proposed repeal of the 
regulation would not affect any entity, including any small entity.
    3. Recordkeeping, reporting, and compliance requirements. The 
proposed rule would repeal Regulation AA and would therefore not impose 
any recordkeeping, reporting, or compliance requirements on any 
entities.
    4. Other federal rules. The Board has not identified any federal 
rules that duplicate, overlap, or conflict with the proposed repeal of 
Regulation AA.
    5. Significant alternatives to the proposed revisions. Because the 
repeal of Regulation AA will have no impact, there are no alternatives 
that would further minimize the economic impact of the proposed rule on 
small entities.

IV. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR part 1320, Appendix A.1), the Board reviewed the 
rule under the authority delegated to the Federal Reserve by the Office 
of Management and Budget (OMB). The proposed rule contains no 
requirements subject to the PRA.

List of Subjects in 12 CFR Part 227

    Banks, Banking, Consumer protection, Credit, Federal Reserve 
System, Finance.

Authority and Issuance

    For the reasons set forth in the preamble, the Board proposes to 
amend Regulation AA, 12 CFR part 227, and the Official Staff 
Commentary, as set forth below:

PART 227--[Removed and Reserved]

0
1. Part 227 is removed and reserved.

    By order of the Board of Governors of the Federal Reserve 
System, May 28, 2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014-20279 Filed 8-26-14; 8:45 am]
BILLING CODE 6210-01-P